NYU Stern School of Business

Undergraduate College

FINC-UB.0002.004 (C15.0002): FOUNDATIONS OF FINANCIAL MARKETS

Fall 2011

Instructor Details

Elton, Edwin

eelton@stern.nyu.edu

MW 11am-12pm, 2pm-3:30pm

KMEC 9-70

 

Course Meetings

MW, 3:30pm to 4:45pm

Tisch T-201


Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:

 

Course Description and Learning Goals

The course is a rigorous, quantitative introduction to financial market structure and financial asset valuation. The main topics of the course are arbitrage, portfolio selection, equilibrium asset pricing (CAPM), fixed income securities, and derivative pricing. There is a small section on project valuation.

You are expected to understand valuation formulas and be able to apply them to new problems. The appropriate tools necessary for solving these problems will be developed at each stage and practiced in the homework assignments. The models we will cover have immediate applications and implications for real-world financial decisions.

 

Course Pre-Requisites

Students must be comfortable with statistics, linear algebra, calculus, and microeconomics. Students are strongly encouraged to study the review handout on statistics located at the end of the course pack.

 

Course Outline

  1. Financial Investment and Markets
  2. Returns
    1. Time value of money
    2. Some return measures
  3. Portfolio Theory (7 sessions)
  4. Law of One Price
  5. CAPM (2 sessions)
  6. Equity Valuation (2 sessions)
  7. Fixed income (4 sessions)
  8. Options (3 sessions)
  9. Futures
  10. Swaps

 

Required Course Materials

Readings

The materials for this class are:

  1. “Modern Portfolio Theory and Investment Analysis" by Edwin J. Elton, Martin J. Gruber, Stephen J. Brown, William N. Goetzmann, 8th edition.
  2. Selected Materials from \Essentials of Corporate Finance" by Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, 8th edition

We will mainly use [1], abbreviated EGBG in notes. We will only use chapters 5 and 6 from book [2], abbreviated RWJ. These two chapters come as a supplement in the class material packet if you purchased your class material through the bookstore. The supplement [3] will only be used in classes 2 and 3.

Additionally I will post on Blackboard the course powerpoint slides that I use in class, handouts with important material, problem sets, and practice exams. You will want to take notes during class; the handouts are there to alleviate the amount of writing you need to do. 

Calculator and Excel

You need a calculator for this class. Make sure to bring yours to every lecture. It is a distinct advantage to have a financial calculator. If you plan to take other finance classes, you will get good use out of a financial calculator anyways. Standard financial calculators include the HP 12C, the HP 10B-II and the TIBA-II Plus. You are expected to learn how to operate the calculator on your own.  Every student at Stern is expected to be comfortable with EXCEL tools. In particular any Finance area major is expected to have a knowledge of these tools that extends beyond familiarity to an individual awareness of the uses and limitations of this technology.

 Communication

The class web site is on Blackboard at http://www.sternclasses.nyu.edu/. This is the central location where all teaching materials are posted. TA office hours and class announcements will be posted here. Problem sets are posted there as well. Solutions to the problem set will be posted no later than one week after the due date; they will not be distributed in paper form in class.

 

Assessment Components

Exams

The midterm and final exams test your understanding of the key concepts in the class. They do not test your ability to memorize or to use your calculator. Rather they probe your deeper understanding of the material. As a result, they may be more challenging than the exams you are used to. To prepare for these exams, you should review the slides together with your own class notes, the handouts , the concept questions, the required readings, the problem sets, the sample exams and preferably the suggested problem sets and suggested readings. The final exam is cumulative. You will be allowed one double-sided page of notes at the midterm exam and two double-sided pages of notes at the final exam. The sheets must be no larger than 8.5 inch by 11 inch. There are no restrictions on the content of the formula sheets, except that you are not allowed to reprint my Powerpoint slides verbatim.

Due to University regulations as confirmed through the Dean's office, students must take the final examination with their assigned Section. Unfortunately, the Professor has no discretion on this matter.

Problem Sets

There will be several problem sets over the course of the semester. Late problem sets will not be accepted. You are encouraged to work in groups on the problems, but you must hand in your own copy and you are asked to acknowledge any help you received on the front page of your copy. The homework questions will be in the same spirit of the exam questions, but slightly easier. After all, they are your first encounter with the implementation of the material.

Problem Assignments

There are a set of assignments from the book. The answers to these problems are to be filled in on Blackboard within one session of discussion of the material in class. After that time, answers will be posted

Study Groups

It is highly recommended that you regularly review the class material in your study group. Don't wait until exam time to meet with your group. By then it's too late.

Final Remarks on Performance

This class is both exciting and demanding based on the quality and quantity of the covered material. Students who do well in this class typically do all of the following:

 

Group Projects

Guidelines for Group Projects

Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.

Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole:   its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.

It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problem-solving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.

You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.

 

Grading

Grades will be based on the final exam (45 percent), the midterm exam (30 percent), problem sets (15 percent), problem assignments (5 percent) and class participation (5 percent). Class participation is strongly recommended as it will be accounted for in the determination of the final grade.

The participation grade consists of class participation and attendance. Inappropriate classroom behavior (such as coming late, disrupting the class, etc.) will negatively affect your final grade.

At Stern, we want to ensure fair and consistent grading across core courses. As such, grades for this course will be distributed on average following the Stern Grading guidelines for Core Courses at the Undergraduate College (although there can be variation from class to class).

Re-Grading

The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.

 

Re-Grading

The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.

 

Professional Responsibilities For This Course

Attendance

 
Participation

In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:

 

Assignments

 

Classroom Norms

 

Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 

 

Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 

 

Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.

 

Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.

 

Recording of Classes

Your class may be recorded for educational purposes

 

Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.

 

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